Determinants of Real Estate Mortgage Uptake in Kenya

Abstract:

The purpose of the study was to better understand the determinants of mortgage uptake in Kenya. The study was guided by the following research questions: How does household income affect the mortgage uptake in Kenya? How does employment status affect mortgage uptake in Kenya? How does interest rate affect the mortgage uptake in Kenya? The total population for this study comprised of one hundred and fifty respondents. The study adopted a descriptive research design. This design was appropriate for this study because it necessitated collection, organization and summarizing data from a sample for conclusions. The sampling technique adopted in this study was simple random sampling. The data analysis involved measures of central tendency and frequencies. The study revealed that majority of the respondents agree that indeed low income has contributed significantly to low mortgage uptake, with high income level it is easier to get mortgage than if low income earner in Kenya, It is cheaper to get a mortgage if you have a stable income, unexpected changes in mortgage price has made it difficult for low income earners to afford houses, Many financial institutions are not willing to give mortgage to low income people in Kenya, individuals with volatile income tend to default paying mortgages than those with a stable income, not every middle income person can afford to take mortgage in Kenya, high level of poverty rate in Kenya has contributed significantly to low growth in real estate in Kenya and finally low income earners avoid taking mortgages due to anticipate future loss to their assets. The study also revealed that there was a positive relationship between mortgage uptake and the employment status, the coefficient value of 0.591 and a t value of 11.101. When the calculated t-value is higher the critical t value at p=0.005 then the findings indicate that mortgage uptake in Kenya status is positively and significantly influenced by employment income. Finally the study revealed a negative relationship between mortgage uptake and interest rates, the coefficient value of -0.461 and a t value of -.285. When the calculated t value is lower the critical t value at p=0.005 then the findings indicate that mortgage uptake in Kenya is negative and significantly influenced by interest rates. Similarly the findings revealed that indeed Interest rates provided by financial institution affect the mortgage takers, interest rates fluctuations have a positive impact on the mortgage uptake, many Kenyans consider putting up their own houses rather than taking a mortgage, majority of Kenyans cannot afford to take a mortgage in the current set up, lending rates of the mortgage providers should be closely monitored, mortgage providers in this country are making supernormal profit, financial institutions charges discourage borrowers from taking mortgages, competition among the finance providers has contributed to mortgage uptake in the country, through increase in competition the cost of borrowing has decreased. The study concludes that indeed household income is an important determinant of mortgage uptake, with high income level it is easier to get mortgage than if low income earner in Kenya, It is cheaper to get a mortgage if you have a stable income, unexpected changes in mortgage price has made it difficult for low income earners to afford houses. The study also concludes that that there was a positive significant relationship between mortgage uptake and the employment status. This is a clear indication that employment status matters and influences mortgage uptake in Kenya. These factors include: Employment Status, lack of employment, nature of employment i.e Permanent or casual, income from employment and volatile income.Finally the study concludes that there is a negative insignificant relationship between mortgage uptake and the interest rates The study recommends the need for real estate developers to ensure a careful development of strategies to avoid speculation from the outset. The study recommends the use of alternative technologies in Kenyan market to bring down the cost of housing. Finally establishment of a well-developed financial sector, including a more integrated micro-credit sector. This can help expand access to an array of financial services (credit and insurance; saving facilities and payment instruments). This helps to finance small private firms at rates that do not cripple their operations.

Description:

A Research Project Report by Kiguru Fredrick Ngigi, Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Master of Business Administration (MBA)